A blog about Politics, Economics, and assorted random things I find interesting

04/11/2014

Business owners who have Facebook pages have been complaining to the company that Facebook users who have "liked' their pages are no longer seeing updates to the page.

In advertiser-speak, this 'organic reach' is declining-- as few as 3% of the people that "like" a page will actually see its status updates.

Facebook argues that without filtering, a typical user would get 1500 status updates a day. No one wants that many status updates. So FB argtues it has to filter stuff for the user's benefit.

I have a different idea, though. What if insead Facebook made it easy for people to unlike or do their own filtering? If a page is sending you too many updates, mute it or unlike.

It won't take long for people to figure out that those who "like" everything end up with cluttered feeds, and they will make the decisions about what they like enough to actually have pushed to their news feed.

People making their own choices and having consequences from that-- what a concept.

12/18/2012

As I type this, Apple is selling for about $532 a share. That's cheap by several measures.

The ratio of price to earnings is only 12:1 Stock market average (S&P500) is about 15:1 Apple is cheap even if it never grew its overall earnings at all. Current revenues are high enough to justify a higher share price.

But Apple is still growing, even if it can't grow as quickly in the future as it did in the past. While Apple is unlikely to grow earnings at the astounding rates it did in FY2009-FY2011 (69%, 67%, and 83% respectively) it is still growing a great deal. The recent quarter still had earnings up 23% relative to last year's same quarter.

And there's reason to believe there's more to come. IPad mini sales are increasing now that supplies have finally started to keep up with demand. The rumored launch of an Apple Television product is not priced into the stock.

If Apple has any weakness as an investment, its that it has become of victim of its own success. The huge amounts of cash that are coming in are reducing its profitability.

Allow me to explain. Apple took in $156B in revenue in the last 12 months. It spent $88 billion to generate those revenues. When you pull out all the deductions for research, administration, depreciation, amortization, and such you leave Apple with a net income of $41.7 billion.

But Apple has over $121billion in "cash, cash equivalents, and marketable securities." These investments are very low rate of return-- usually less than 3%.

Compare this with the overall profitability of Apples and see that Apple only has to spend $0.56 to make a dollar. This is a 44% return (gross margin).

See the problem? As Apple takes in more and more cash, the percentage of its revenue that comes from selling things will shrink as the fraction that comes from short-term invested cash grows.

What this means is that Apple will appear to have margins get worse just because it's making so much money. It has more cash than its current operations can use. Far more. Apple spent less than $10 billion on all administrative costs, R&D, marketing, etc. Thus, it's "operating margin" at 35.3% is not far below its gross profit margin. Moreover, that operating margin is higher now than ever before. Apple is becoming MORE profitable in a marginal sense, not just in terms of growth. Itss profitability is scaling up faster than its basic revenues are.

06/13/2012

Watching the keynote presentation from Apple's Worldwide Developer Conference, this is my conclusion: Apple sees Facebook as the primary competition, not Google's Android. I predict that not only will Apple finish off Android, but that Facebook will continue to decline as Apple eats their lunch, too. Eventually, Facebook will join MySpace and Yahoo as an internet relic on life support.

Much has been written about the Android vs. iOS rivalry, and how supposedly Steve Jobs vowed to destroy Android at all costs, including spending "every last penny of Apple's money" or something like that.

But the Android/iOS battle is pretty much over, and iOS has won. The only way that Android will emerge as a major threat to iOS is if someone like Samsung buys up the rights and brings it totally in-house. The Android model of fragmentation just doesn't work. The proliferation of Android versions kills developers because they don't want to make four versions of the same app. The sales are fragmented. The lack of software and hardware integration is limiting the platform, and always will until someone bring it in house and integrates it. Sort of like Apple did from the very beginning.

The key theme I took away from the announcements at the WWDC is one of integration: converging the iOS operating system to the regular Mac OSX operating system. This radically changes the landscape. With seamless sync from your laptop to your phone in real time(!), you get a user experience that is unrivaled.

Right now, Apple has 400 million people with accounts at the iTunes store, and people are buying apps and music and mind-boggling rates. But these users interact primarily with Apple. Apple knows that the real key is getting Apple users to interact with each other. When Apple becomes the hub around which your social network operates, then parties like Facebook are cut out.

The new software features show go far towards making this happen. By making it effortless for the millions of iPhone users to share their digital lives with other iPhone users, people were use the built-in Apple functions preferentially. Why mess with a Facebook app to post a photo, when the built-in iOS functionality is superior and faster?

Facebook is ubiquitous on the web, but the mobile Facebook experience is nothing like the web-based Facebook experience. The Facebook app for iOS is awful and clunky. Facebook has grown a lot as a social plug-in that replaces Disqus and Reddit and several other commenting platforms. But this feature is completely absent in the Facebook mobile app. You can't make website comments through your phone, not can you view the replies to comments you already made. Your phone (at least on the iOS app) will tell you about these replies, but you can't do anything with them.

Facebook has a number of problems that deserve a separate posting by itself (in which I will lay out my case arguing that Facebook is a dead man walking). The primary problem is that it is web-centered trying to reach out to mobile.

Apple is taking the opposite approach in being mobile-centered and reaching back to legacy web. Almost everyone agrees that mobile is the real area of the future, and the growth data backs up that assertion. The legacy web will likely be relevant in the future only to the extent that it integrates seamlessly with mobile.

Apple has not been responding to market desires and customer requests. Instead, Apple CREATES amazing products and customers go enjoy them. Apple wisely recognized that customers can't ask you for something that they think doesn't exist or can't be done. By creating something amazing and showing people how they benefit from it, Apple is shaping expectation and determining what customers want.

Sci-fi types and futurists have long talked about "convergence"-- the idea that one system can seamlessly provide an array of needs. Why do you have to have separate telephone and cable TV jacks in you home? Increasingly, you don't-- fewer people than ever are choosing to have a home phone.

Apple is making convergence happen in a very real sense. Apple is now a dominant player in music publishing, and the legacy studios are scrambling to update their antiquated business models based on CD sales and radio airplay. In 5 years, Apple went form a company that had never made a phone to the company that made the iPhone, killing off Sony/Ericsson in the process and making Nokia, LG and Motorola into struggling bit players. Even the once-mighty RIMM and its Blackberry is withering under the onslaught of Apple innovation and development.

Apple created the modern tablet market, and the iPad has no real rivals. Efforts from competitors have been so inept as to not even really be competitors.

Think about what Apple has done to music. They went from selling MP3 players to being the largest seller of music on the planet.

What's next? Movies? Is Apple going to kill off Netflix? What about e-books? Is Apple trying to go toe-to-toe with Amazon? Who knows?

The point is not that Apple will do anything with movies and books necessarily, but that it is positioned to be a viable threat to any media company or enterprise because of its unrivaled distribution system and how it is integrated into its devices.

As Apple continues integrating its products with each other and with the media distribution it has in the iTunes store/App store platforms, I expect Apple will add $150-$200 billion more in market capitalization. The stock isn't yet done going up.

10/25/2011

Research in Motion (NYSE: RIMM) is dying. I don't expect it to last much longer, even in spite of how loyal its users are,

The first and biggest reason: apps. Or in the case of RIMM, the lack of apps. Apps define the capability of the phone, and the hardware in the phone exists only to empower applications. A great in-phone camera is useless if the processing is lame, you can't easily edit it, or it doesn't integrate well with the full range of social media clients out there. RIMM lost the market share that really matters: developer market share. This story tells of RIMM sending our marketers to try and court developers. Nice try, but when fewer than 15% of all app developers are supporting your platform, the road ahead gets pretty challenging. Do you have a super-capable OS and API to help them develop. Well, compared to the Apple's iOS 5 and Android 4.0, not so much. It appears that Apple and Google are so far ahead that the only competition between RIMM, Nokia, and Palm/HP (yes, the still make phones) is to see who be the slowest to die.

As RIMM's evangelists pitch to developers in the Valley about the international prospects of the platform, it is a tacit admission of failure-- as if to say "ignore our crumbling market share in the countries with the most money to spend on our product-- look at how well we're doing in the developing world!" It brings to mind pictures of Cubans driving '57 Chevies in the mid-90s, or that random Uzbek kid with a Michael Jackson Thriller T-shirt on in present times.

But Goldman is estimating that RIMM's market share is slipping overseas, too. The countries with money want a better product, and there is plenty of it available. Technology never trickles up from poorer countries.

RIMM's Playbook foray into the tablet market was perceived as the iPad wannabe that it is. It is clunky and overpriced for what you get. Did I mention that app situation? They market this product as being a "professional-grade tablet." Really? Simply being Blackberry-branded makes it professional? Show up as a key presenter with an iPad or a Playbook-- which one is going to get more positive attention. IPads are bone fide cool now. IPad competitors are thus far just novelties

This brings up the really key conundrum that RIMM finds itself in. Blackberry users are by and large people who got plugged into the Blackberry earlier and have stuck with it. Businesses that are wedded to Blackberry products do so not because they are better performers, but because they work well enough and have two other advantages: they are familiar and there are no transition costs. In other words, being status quo is the primary virtue of the Blackberry platform.

But the mobile device market is anything BUT status quo. Apple proved that when it went from a non-player in smart phones to the dominant player in (can it be only?) four years. It introduced a better platform and lured in millions of new customers. This, with a phone only available on a SINGLE wireless carrier! How valuable is customer loyalty in mobile devices? Hard to say, since it doesn't exist.

Where are the new Blackberry adopters? There seem to be few. Who wants to carry two phones around when you have a newer Droid that can do everything the Blackberry does and so many things it can't? Even beleaguered Nokia and it's Windows phone are doing better than RIMM is.

RIMM's only hope, in my opinion, is to license a better OS-- and fast. The basic handset of a Blackberry is something people like. But the software/firmware shortages have left the blackberry as the dumbest "Smart" phone in town. Early adoption of Near Field Communication will help buff a little rust off, but it cannot cure the current genetic problems with the RIMM mobile product.